When planning to purchase a property, securing a home loan is often the first step. In India, borrowers typically choose between banks and Non-Banking Financial Companies (NBFCs). While both institutions offer housing finance, the differences in their interest rates, loan eligibility, repayment flexibility, and approval criteria are crucial to understand. In this guide, we break down all aspects of home loan from banks vs NBFCs in 2025 to help you make an informed decision.

Home Loan Options in India 2025

What Is a Bank? What Is an NBFC?

Banks

Banks are regulated by the Reserve Bank of India (RBI) and operate under the Banking Regulation Act. They offer home loans, savings accounts, and a wide range of financial services.

NBFCs (Non-Banking Financial Companies)

NBFCs are financial institutions that do not hold a banking license but still offer loan and credit facilities, including home loans. They are regulated by the RBI, but with fewer restrictions compared to traditional banks.

Key Differences Between Banks and NBFCs for Home Loans

Banks

• Offer lower interest rates, usually in the range of 8% to 9.5%, depending on credit score.

• Interest is typically floating, linked to MCLR or repo rate.

NBFCs

• Interest rates are slightly higher, ranging between 9% and 11%.

• Rates are linked to PLR and may not reduce in line with RBI cuts.

Interest Rates: Banks vs NBFCs in 2025

Documentation Requirements

Banks

• Identity Proof

• Income Proof (ITR, salary slips, bank statements)

• Property Documents

• Employment Proof

NBFCs

• Similar documentation but often require fewer verifications and offer custom solutions for self-employed individuals.

• Banks usually take longer due to in-depth documentation and credit verification.

• NBFCs are known for faster disbursement and minimal documentation, making them ideal for self-employed individuals or first-time homebuyers with limited credit history.

Loan Approval and Disbursement Speed

Eligibility Criteria: Stricter at Banks, Flexible at NBFCs

• Banks prefer borrowers with stable income, good credit score (750+), and low debt-to-income ratio.

• NBFCs are more open to low credit score applicants, freelancers, and those with irregular incomes.

📝 Tip: For salaried employees with consistent income, banks are a better choice. For freelancers and entrepreneurs, NBFCs offer more flexibility.

Which Is Better for You?

• Choose banks if you have:

  • A strong credit profile

  • Stable income

  • Time to go through formalities

  • Preference for lower interest rates

• Choose NBFCs if you:

  • Need faster loan processing

  • Have a low or no credit score

  • Are self-employed or freelance

  • Don’t mind slightly higher interest rates for convenience

• Loan rejection from banks has a higher negative impact on your CIBIL score.

• NBFCs often approve borderline cases, helping borrowers build or repair their credit history.

Impact on CIBIL Score

Prepayment and Foreclosure Charges

• Most banks do not charge prepayment fees for floating-rate home loans.

• Some NBFCs may impose prepayment penalties, especially on fixed-rate home loans.

Frequently Asked Questions (FAQs)

Which is better for home loans—banks or NBFCs?

It depends on your credit profile. Banks offer lower rates but stricter approvals. NBFCs are more flexible and faster but may charge higher interest.

Are NBFC home loans safe?

Yes, NBFCs are regulated by the RBI. Choose a reputed NBFC with good customer service and transparent terms.

Do NBFCs offer lower home loan EMIs?

Not necessarily. Their EMIs may be higher due to higher interest rates, though they offer flexibility in tenure and approval.

Can I transfer my home loan from NBFC to a bank?

Yes, you can opt for home loan balance transfer to a bank if you get a better rate, subject to terms and foreclosure charges.

Is my CIBIL score affected if my loan is rejected by NBFC?

Loan rejections can impact your score, but NBFCs are generally more accommodating than banks.

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